By Dan Blacharski
The world is on the brink of a tremendous wave of new startup activity, and the catalyst of this new era of innovation and entrepreneurship is the cloud. The “dot cloud boom” that we are just starting to see is the result of entrepreneurs realizing that yes, they can start a company without moving to California, they can do it with fewer people, and with less money and still have a better-than-average chance at success.Despite what the wonks, academics, advisors, and armchair business counselors tell you, there is not – and never has been – a standard formula for startup success. What worked for people like Henry Ford, Andrew Carnegie, and even latter-day entrepreneurs like Steve Jobs, doesn’t work today. And what works today will not work five years from now.The biggest changes in how startups get started are derived from cloud computing. While NIST does have a definition for the cloud that breaks it into software, infrastructure, and platform-as-a-service, cloud computing is more than technology. Cloud is a business model that fundamentally changes how businesses operate, and more to the point, changes how they get started.Today’s successful innovators weighed in with Techie.com staff to discuss precisely how the cloud has changed how they approach startup entrepreneurship. The top ten ways the cloud has changed how startups launch include:1. No more “jack of all trades” founders.Typical startup founders have had to have a hand in virtually everything, whether they know anything about it or not – leading to a sort of “fake it till you make it” type of philosophy. It’s great to be a Renaissance Man that knows something about everything, but the good news is that you don’t have to be in order to gain success. This can work, but it’s even better when you can focus on what you know best, and leave the rest to third party suppliers.Douglas Berman, a Dallas attorney who focuses on startups and emerging growth companies, has seen significant changes in this area. “The biggest change I have seen in terms of launching is that cloud services allow companies to focus more on their business model and key functions rather than using time and resources to build back-end infrastructure,” said Berman. “This can save a lot of time and money. It can also allow a small company to focus post-launch resources on refining its business model and core product rather than worrying about whether its servers can handle capacity since many cloud services can be increased very quickly.”The cloud has led to an era of specialization. Third party companies are springing up to offer highly specialized, strategic services – on an “as-a-service” basis – giving even bootstrapped startups access to specialists that they wouldn’t otherwise be able to afford. The end result? Entrepreneurs don’t have to spread themselves too thin, and they can spend their time focusing on growing their businesses.2. Easier scalability lets you think big from the very beginning.Entrepreneurs seldom shy away from thinking big, but it can be difficult when your pockets are empty, you have no customers, and your friends and family are all telling you to go get a real job.When you are just starting out, it’s easy to keep track of customers on index cards and back up your files manually to a thumb drive. Surprisingly, startup failures often result not from not enough growth, but growth that happens too quickly to manage – and the inability to scale.When Peter Kirwan, serial entrepreneur and CEO of Collexion, Inc., co-founded this online home for collectors of just about anything from vintage beer cans to antique typewriters, he decided to go “all cloud” from the very beginning. “Because there are not software upgrades, hardware upgrades and up front capital, a company can grow from one to thousands of employees in a very linear way without many disruptions as they grow, both technically and financially,” said Kirwan.This sort of easy scalability lets entrepreneurs think big. “Because you can scale with services like Amazon’s web service for your website and productivity apps so easily, there is no limit to how quickly you can grow,” said Kirwan. “Costs tend to grow with revenue and you don’t have to think about technical challenges of growth as much. Everyone thinks bigger. Not having these roadblocks changed everyone’s way of thinking about limits – and there are none, really.”3. Offices anywhere – startups are not geographically-centric any more.Where are all the tech startups these days? They are everywhere. Tech startups are just as likely to be in South Bend, Indiana as San Jose, California, simply because they can. The geocentric nature of the tech startup world is a thing of the past. Do you, as a startup, want to be around other startups? Sure. But you don’t have to go to Silicon Valley to find them – they are springing up all over, due to several factors: First and foremost, the cloud has made it possible to launch from anywhere. Communication and collaboration technologies have made it possible to have a widely dispersed team and to reach out to potential clients the world over. The lean startup model lets you focus on your core competency, while allowing other cloud-based strategic services suppliers – in all parts of the world – provide you with necessary services to keep your company going.Brandon Bruce, co-founder of Cirrus Insight, knows plenty about the democratization of tech startups. Cirrus’ own technology synchronizes Google Apps with Salesforce to make this powerful CRM even more powerful and universally accessible to a dispersed team. Bruce is located in Maryville, Tennessee, just south of Knoxville. His partner and co-founder Ryan Huff is in Orange County, California. “We’re a pretty connected team,” said Bruce. “I’m on the phone with my partner several hours a day, whether it’s GoToMeetings or Google hangouts, or just a phone call. We may not be in the same room, but we’re basically in the same room.” And while Bruce is first to admit that Knoxville isn’t Silicon Valley, it doesn’t need to be, and he’s been seeing a lot more tech excitement in the area with several new startups, an accelerator called Tech 20/20 that has created a regional entrepreneurial ecosystem, and technology transfer coming out of nearby Oak Ridge National Lab.The costs for creating a geographically diverse business ecosystem has been minimal. Besides his own system of course, Bruce uses tools like Google hangouts, Google video calls, GoToMeeting, and Basecamp. “We use Google Drive a lot for collaborative creation and editing files, and then we use Dropbox also a lot for file saving,” he said. Most of these tools are low-cost or free, making the virtual business model and an extended team a practical and geographically-independent option for almost every startup.4. Startups can access services that were once available only to large enterprises.The all-encompassing software systems with six- and seven-figure price tags may be wonderful things for the companies that can afford them, but that doesn’t mean that bootstrapped startups are relegated to freeware, trial versions, and paper index cards. Software-as-a-service has gone beyond replacing day-to-day productivity apps, and has entered into the realm of ERP, CRM, and big data, giving startups access to services that were once far too costly. Semantria is a perfect example. The company’s fully cloud-based text and sentiment analysis solution can take vast amounts of unstructured text and transform it into actionable data. This sort of big data analytics was until recently the domain of larger companies seeking useful tools for market research, often paying large amounts of money. Semantria CEO Oleg Rogynskyy founded the company in direct response to this dilemma. In working previously with data mining companies, he would frequently see customers coming into the office, saying, “‘Hey, I really like what you guys do. Can I try it?’ And our response was, ‘Yes. $100,000, please.’ The premise behind Semantria was to make text mining and analysis technology available to a nontechnical user, in under three minutes, and for less than $100,000.” Rogynskyy has achieved that goal impressively, with a free trial version, a standard version accommodating 100,000 transactions per month at just $999, and a premium version accommodating a million transactions per month for $1,999.Eighty percent of Semantria’s customers are startups or individual users. The company has been able to democratize this type of data mining by leveraging the cloud. Semantria is built on the Amazon cloud, and it has an Excel plugin that lets you use it from within Excel.5. You don’t need the Super Bowl to advertise.You meet with an ad agency’s account man at a trendy bar in Manhattan. He is wearing a double-breasted charcoal grey suit with a pocket square folded just-so. You order an Old Fashioned, complain about the traffic, and tell the account man about your plans to dominate the industry. He shares his ad campaign concept with you, and you’re impressed. You sign on for a retainer of about a million bucks a month, and your ads are on network television and every trade magazine in the country.It really does work that way – just not too often. Most tech companies don’t have that kind of budget, the best agencies are no longer just in Manhattan, and there’s a lot more to consider than television and print.New media ad platforms started with the likes of Google Adsense and have evolved from there, giving small businesses an opportunity to advertise online without having to have a big budget. Moving beyond Google, you’ll see companies like Adagogo, which is a self-service ad platform for SMBs that want to get onto mobile ad platforms. Mobile advertising is huge – according to Ad Age, mobile ad spending in the US will hit $8 billion this year, and that means advertisers have to design their campaigns around mobile platforms.Based in Minnesota, Adagogo and its parent company DoApp make it easy and affordable for startups (even broke startups) to get started in mobile advertising and drive business. Founder Joe Sriver describes the hyperlocal focus of Adagogo. “We have an infrastructure of about 1,500 mobile apps, in major metropolitan areas as well as smaller ones. So we have an infrastructure of ads that’s just sitting there. We wanted to push this out, and see what the response was from local businesses who wanted to quickly get on mobile devices and get their name out. Adagogo came out two or three weeks ago, and we’ve had great response.”The click-through rate for Adagogo’s mobile ads is between two and five percent, compared to an average of about a half percent for other banner ads on Facebook, LinkedIn and Google.6. “Offices? We don’t need no stinkin’ offices!”Among startups that have venture money, especially startups in Silicon Valley, the quintessential office space is huge and open, with a gourmet kitchen, plenty of lounge areas, an outside area for picnics and afternoon walks, a full workout room, and a hammock room for relaxing while deep in thought.Today’s startup office is . . . well, usually nonexistent. We have moved from easy communication to easy collaboration, enabling a situation where instead of “the next best thing to being there”, modern technology is “the same thing as being there”.The change has taken place just over the past 20 years or so. Andrew Dixon, Senior Vice President of collaborative technology company Igloo Software, notes that it wasn’t that long ago that email was the primary tool used to allow people to communicate and share information, and that was not very efficient. E-mail did give us an easy way to send messages, but it did nothing to advance business beyond the “information hoarding” that was frequently prevalent throughout a business. “Once upon a time with more traditional tools, the behavior that was encouraged was for you to hoard information, because that made you the expert,” said Dixon. “And you were rewarded for being that expert. When you introduce social technologies and real discussions, what’s being recognized is your contribution of knowledge to the community. You’re commenting, and with your expertise, providing for the betterment of whatever piece of work you’re focused on. It has fundamentally changed behaviors, and it tends to pull cultures together in a way that wasn’t possible before.”Tools like the Igloo platform make it possible to enable that deep level of collaboration, and to preserve the corporate culture even when the workforce is distributed across multiple states or countries. “There’s probably no replacement for in-person,” said Dixon. “But if you have the ability to use these tools, like video and teleconferencing, if you can express a quick thought using a microblog, and you can be immediately notified if anybody updates a document you were working on and ask for feedback, these are all things we never had before. And it goes a long way towards improving that team collaboration when you’re not in the same room.”7. You don’t have to sell to the CIO.Startups always faced an uphill battle in selling a new product and getting face-time with the head honchos of target customers. But lately, the cloud has shifted the buy decision from being top-down, to bottom-up. Which software tools a company ends up using is often dictated now by end users, who increasingly, have direct access to tools via the cloud. And more importantly, these tools are typically easy enough to deploy and run that the IT department is often completely left out of the loop.This type of democratization has taken hold in every part of the startup environment, from funding, to development moving out of the back room, to end-user engagement. Pat White, CEO of Synata, a company with an innovative tool that helps users find data inside their clouds, says, “The focus is on the end-user, even in enterprise applications. Thinking back to the CIO-driven ’80s and ’90s, decisions were made based on cost and project timing. Now that companies can market directly to the end-user, the CIO can’t solely dictate what apps the company uses. The CIO would make decisions based on price and feature sets; now that the power has shifted to the end-user, all-in-one suites aren’t in demand. Companies that focus on a specific niche in the cloud are more likely to succeed in today’s best-of-breed world.”Further enabling that trend is the fact that distribution has become less of an issue, especially for software companies. “It used to be that in order to get mass distribution, a company’s best bet was to get acquired early by a large vendor. Bottom-up marketing has completely disrupted that model. Instead of going through the CIO to sell the product, companies target managers and doers – the people who actually use the tool. They’re able to download the product, usually for free, from the cloud. This has worked incredibly well for companies like Dropbox and Box,” said White.8. Startup costs are approaching zero.Business schools still preach the gospel of adequate capitalization, and certainly having a fat bank account makes launching a company a lot easier. But if you lack wealthy parents and don’t know any VCs, you are – like almost every startup entrepreneur in America – out of luck. Or are you? The fact is, you just don’t need as much money to start a tech company as you used to. The cloud, rich collaboration tools, and the ability to create a virtual team with no physical office, has lowered startup costs to almost zero.Sean Heilweil, co-founder and CEO of Exit Monitor, a software-as-a-service company with a lead conversion tool, not only has a great toolset that helps online companies get leads and make sales without a big investment, he is also an example of a lean startup that started with very little. “As of now we’re four people,” says Heilweil. “we’ve been working on development for the better part of the last four months, and have finally launched about two weeks ago. We have essentially been able to launch this new product without any funding and in theory, less than $500, which went to infrastructure costs.”Those infrastructure costs, which would have run up six-figure bills just a couple decades ago, are very minimal now, because of low-cost and robust infrastructure-as-a-service offerings that eliminate the need for an on premise data center. “Our infrastructure is all in the cloud, using services like Heroku and MongoHQ. Our entire team works remotely, and we have no plans to ever have an actual office. We use Google Hangouts all hours of the day to make it possible for us to collaborate, stay constantly connected, and communicate better.”Heilweil thinks a lot of startups are headed in the same direction. “For me and a few others, it never made sense to commute to a computer, do your work, and then commute back home. Why can’t I roll over in bed, grab my laptop and start working? There should be no reason that can’t happen. People seem to be more productive and get more done when they’re able to work comfortably and on their own terms.”9. Change in team structure.How many people do you need to launch a tech startup? A team of coders, some creatives, some sales guys, some people to deploy and run the physical network and infrastructure, system administrators – the list is endless. Increasingly though, startups are launching with a very small, core group of three or four people. Serial entrepreneur David Campbell, whose latest startup JumpCloud recently launched at TechCrunch Disrupt this year, notes that “modern ‘lean’ startups that leverage the public cloud often do so with a fundamentally different team composition than startups that built their foundation on top of traditional infrastructure.”“In particular,” adds Campbell, “They rely on their developers to perform system administration functions, which has been a major impetus for the ‘DevOps movement’. They also frequently do not have anybody on staff with a deep background in networking or storage infrastructure.” The biggest change in 2014, according to Campbell, is the change in team structure (no ops people), and that after an initial ramping period, public cloud spending often exceeds the cost of standing up a traditional data center. “Startups going down the public cloud path that get traction, wake up to find that within a few months they are paying Amazon $50K to $150K a month, which seems to be the inflection point for moving out of the public cloud. However, often their cloud spend continues to rise because they don’t have the ops and sysadmin staff required to run a traditional infrastructure, and also don’t want to spend the time and energy to build a data center.”Cloud computing pioneer Emil Sayegh, president and CEO of Codero Hosting, also notes startups’ infatuation with Amazon Web Services (AWS). “Why? At the surface, the economics looked better than on-site hosting, the reliability of such large infrastructure looked very attractive, but the more important reason was so precious company resources could be focused on differentiation – not running infrastructure.” All those factors are true, but there is still a shift underway that may end that infatuation with AWS, marked by higher costs and a level of inflexibility. Sayegh notes, “AWS is not suited to run many applications such as big data applications, databases, or any I/O intensive applications. We are now seeing the rapid and strong emergence of the ‘hybrid cloud’. This brings all the benefits of the cloud that investors and startups love, combined with the traditional unbridled performance of traditional infrastructure.”The best solution, according to Sayegh, is a hybrid cloud that offers the on-demand functionality that startups need. “What tech startups need is an on-demand hybrid cloud that spools up dedicated bare metal servers for high performance, and virtual cloud servers for front-end apps instantly on-demand, without contracts.”10. Fewer worries about IT security.“If I can’t see it and touch it, it must not be secure.”That’s the heart of the Fallacy of Direct Control. This common fallacy incorrectly posits that in order for an infrastructure to be secure, a company’s administrator must be able to have direct access to it. In fact, in most cases you’re better off leaving it in the hands of an off-site data center. SMBs in particular just don’t have the security know-how, the time, the 24×7 coverage, or the physical security environment to protect their data. 24×7 coverage may mean little more than waking up the admin at three in the morning when something goes wonky, and physical security is a deadbolt on the office door to which eight people have a key.According to Joel Lehrer, partner at Goodwin Procter, a national law firm specializing in IP transactions and provider of the free online legal and business resource for entrepreneurs called Founders Workbench, “High level data breaches and privacy concerns are changing how entrepreneurs address privacy issues even at the early stages of their businesses. We are increasingly seeing today’s entrepreneurs opting to launch their companies in the cloud and to use aggregated and anonymous data collected from their customers in new and creative ways. With this comes a new set of considerations to ensure IP rights are documented and data are properly protected. For example, it is important for entrepreneurs to research and evaluate their chosen cloud provider and to make certain the selected provider is able to protect the privacy of their data to meet any applicable legal and regulatory requirements. Failing to do so jeopardizes employee and client privacy and can impact the overall success of the company.”Today’s startups however, are worrying less about security, mostly because the cloud data centers that are serving them are worrying more about it. Ray Cavanagh, board member of the ASIS Physical Security for Cloud Computing Council, notes that physical security is increasingly important, especially in an increasingly virtual and BYOD environment. “The market has to be more cognizant,” he said. “The initial reaction was that people shied away from the cloud because of the security element. If you can’t touch it, you don’t feel like you control it, and if you don’t control it, how do you know how well it’s being handled? So I think the market is forcing the data centers to be able to prove how security is being handled. Companies who are migrating to the cloud are becoming more aware that they have to do due diligence on those firms to make sure that all the proper controls and security elements are in place.”Startups are more comfortable in the cloudAll of the above ten factors have dramatically changed the nature of tech startups, how they operate, and how they think. More readily available and more secure infrastructure and services are available via the cloud, making it less necessary to deploy on-premise right from the start. Up-front startup costs are decreasing, while quality of as-a-service offerings is increasing, and the security of the cloud – driven largely by market realities and competition between data centers – has made these options even more attractive.